Scalping is a popular type of day trading strategy that involves opening many small trades per hour and then adding profits and subtracting losses. Generally these trades last very short, sometimes even a few minutes or seconds (depends on your objective and analysis). The goal is to make many small profits per day while limiting the amount of losses.
In this article, we will look at how scalping works and then identifying some of the top 1-minute trading strategies handy to apply right away.
As always, we recommend you do some testing in your demo platform first, especially to get used to picking up signals much faster.
What is a scalping strategy?
Day trading is the practice of opening multiple trades in a day. It differs from other approaches simply because day traders don’t believe in holding trades in the overnight session. They believe that doing so is a high-risk thing that will tend to lead to significant losses.
Therefore, day traders use a number of approaches. There are those who initiate trades in the morning and then close them when they are ending the day. There are other day traders who spend their entire day finding and implementing different strategies.
Scalping is a relatively unique strategy in that the trader tends to open a trade and then close it within a few minutes. As such, they use very short-term charts, with a maximum size of about 5 minutes.
Using longer charts in scalping will tend to lead to substantial losses because each candlestick represents a longer period. For example, each candlestick in a hourly chart represents one hour.
1 minute scalping strategies
A 1-minute scalping strategy refers to a situation where a trader uses the 1-minute chart to conduct analysis and execute trades. In a 1-minute chart, each bar usually represents 1 minute period, meaning that you will be seeing the bars move in real-time. The chart below shows how such a chart looks like in Cardano’s chart.
A 1-minute chart can be deceiving in the longer term. For example, a visual look of the chart above shows that the coin is basically in a downward trend.
However, when we shift it to a four-hour chart, it shows that the coin is actually in a bullish trend. But in this case, one-minute traders don’t care about the performance in longer periods.
However, there are types of traders who can benefit greatly from using different time frames.
However, that's not the focus of our post. So.. Let us look at some of the best 1-minute scalping strategy when scalping.
One of the most popular 1 minute scalping strategies is known as trend-following. Its name tells it all. It is a trading strategy that identifies an already-established trend and then follows it until it changes its direction.
If an asset is moving in an upward trend, then you can initiate a buy trade and hope that the trend will continue. Similarly, if the stock is moving in a downward trend, you can short the asset and benefit as the price rises,
Trend following is a fairly simple strategy to use when you are scalping in a 1-minute chart. Your goal is to find an asset that is in a bullish trend and then just buy, especially when it makes a pullback. In this case, you will make some cash when the price rises and then move on to the next one.
At times, you can ride a bullish trend and then make money when a bearish trend starts. This is usually possible because most bullish trends tend to be followed by a bearish move.
» Related: The best trend indicators
Bullish and bearish flags and pennants
Another strategy to use when scalping on a 1 minute chart is to identify an existing trend and then establish flag and pennant patterns.
A flag is a pattern that has a flag pole and a rectangle type of consolidation. A pennant has a shape that looks like a triangle. These flags and pennants are usually breaks that exist during an uptrend or a downtrend.
Whenever they happen, they usually end with a continuation of the existing trend. A good example of a bullish flag pattern in a 1-minute chart is shown in the chart below.
Other continuation and reversal patterns
Another scalping strategy when you are identifying other continuation and reversal patterns in a chart.
Examples of continuation patterns are ascending and descending triangles and cup and handle. When you see an ascending triangle pattern, it means that the asset’s price will likely have a bullish breakout.
On the other hand, when you see a descending triangle, the likely price action will be a bearish breakout. Therefore, you can just wait for a breakout to happen and then hold the trade for a while.
Reversal patterns are double or triple top and bottom patterns. When a double-top pattern happens, the likely outcome is that the price will have a bearish breakout. You can then ride the new trend for a while.
Using the VWAP
There are many day trading indicators that you can use when scalping. One of the best one is known as the Volume Weighted Average Price (VWAP). It is a technical indicator that seeks the overall average of an asset in a certain period of time. Unlike most other technical indicators, it is only useful in an intraday format.
There are several approaches of using the VWAP indicator. For example, you can identify areas where it crosses an asset and then implement a trade. If it moves above an asset, it means that bulls are prevailing, which will lead to more upside. On the other hand, if it moves below the VWAP, you can implement a short trade.
A good example is shown in the chart below. As you can see, there are several clear buying and selling opportunities.
Summary: Is the 1 minute timeframe the best for scalping?
There are several other strategies you can use in scalping using a 1-minute chart. For example, you can use a channel strategy where you draw channels and buy when it falls to the support and short when it moves to the resistance.
Another strategy is known as reversals, where you seek to identify points when an asset is about to reverse.
Beyond all these strategies, however, it is clear how much this type of charting is for the exclusive use of scalpers. And that this is perhaps the best timeframe for this category of Day Trader. It would be dangerous to analyze charts with too long intervals (30 minutes or one hour) if we are doing scalping.
External useful resources
- Easy to follow 1 minute scalping strategy - Asktraders